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'Hot money' flows out for 2nd straight month in March

by April 22, 2017 General
Top Story

By Melissa Luz T. Lopez, Senior Reporter

Posted on April 22, 2017

MORE foreign capital went out of the Philippines in March for the second straight month on the back of profit-taking and higher interest rates in the United States, the Bangko Sentral ng Pilipinas (BSP) said.

Foreign portfolio investments, called “hot money” due to the ease by which funds enter and leave markets, posted a $459.86 million net outflow last month, sustaining the $409.01 million in outbound capital logged in February and reversing a $482.43-million net inflow logged in March 2016.

This pulled the three-month tally to a $567.53-million net outflow, reversing the $395.99 million in net inbound capital logged during the same period last year, according to central bank data.

Some $1.374 billion in foreign capital entered the Philippines in March, the highest level since a $1.633-billion gross inflows tallied in October last year. This was also 40% higher than the $981.2 million in total investments tallied in February.

The central bank said the surge in gross inflows was due to bargain hunting, which came at a time of a higher interest rate environment in the United States while borrowing costs are kept steady in the Philippines.

However, the monthly increase in inflows was wiped out by $1.834 billion funds which headed for the exit last month. Hot money outflows peaked between March 20-24 amounting to $489.2 million, offsetting some $387.38 million in capital which entered the country that week.

Throughout the first quarter, total inflows hit $3.502 billion but was cancelled out by $4.07 billion in outbound capital.

“This is attributable mainly due to profit taking and continued uncertainties arising from international and domestic developments, such as the anticipated interest rate increase in the United States, and the closure order for several mining companies in the country,” the central bank said in a statement released late Thursday.

March saw the US Federal Reserve introduce a fresh 25-basis-point rate hike, a move widely expected by the markets. Fed chair Janet L. Yellen earlier hinted that the US is on track with plans for two more hikes within 2017 and three more next year.

The bulk or 83.8% of hot money flows were invested in listed firms, particularly to shares offered by holding companies, banks, property developers, food, beverage and tobacco firms, and telecommunication companies, which generated $320 million in outflows, the BSP said.

About 14.9% went to peso-denominated debt papers issued by the national government, which yielded a $158-million outflow, while placements in unit investment trust funds posted an $18-million net inflow.

Foreign investments mostly came from the United Kingdom, US, Singapore, Belgium, and Switzerland, which accounted for 73.9% of the total inflows. However, some 87.6% of the offshore capital went back to the US.

The BSP expects $900 million in net outbound capital this year, which if realized will reverse a $404.43 million net influx of portfolio investments in 2016. BSP officials have said they will review their forecasts and assumptions for the economy over the coming weeks, taking into account the new market developments.